Negative gearing pitfalls to watch out for
Negative gearing is a common property investment strategy employed in Australia and offers a variety of benefits.
However, this type of financial approach comes with a certain degree of risk, so it is paramount that you get a comprehensive view of how it will work relative to your particular real estate investment.
One way to do this is to educate yourself on the Australian tax system and take note of the usual pitfalls associated with negative gearing.
H&R Block recently released its Tax Guide for Property, which may assist in understanding some of the more complex taxation particulars.
“The complexity of income tax means getting it wrong can be disastrous for investors,” H&R Block regional director Frank Brass said in a statement released on Monday (September 17).
“However, getting it right, and getting affairs into order, provides an opportunity to maximise tax refunds.”
Mr Brass said that loans for property – other than for owner occupied dwellings – are the second largest debt undertaken by Australians, presenting an opportunity for households to garner all of their entitled tax benefits.
“The Guide covers some taxation areas where we regularly see investors making mistakes. Many investors give friends and family ‘mates rates’ and do not understand that this may result in their having a lower claim on expense deductions,” he said.
Mr Brass explained the other common mistake was when people make additions to their home with things such as fences, driveways and garages, they are misguided about filing expense deductions.
“They expect to make a claim that year for their costs, but the Australian Tax Office treats them as capital expenses and they are depreciated over 25 or 40 years. This oversight can scuttle many investors’ budgets.”
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